Judicial review – climate change – emissions trading scheme – Climate Change Response Act 2002, s 30GC – unit limits and price control settings – reasonable grounds – admitted error – ultra vires – declaratory relief

Lawyers for Climate Action NZ Incorporated v Minister of Climate Change [2023] NZHC 1835 per Palmer J.

This is a successful application for judicial review by Lawyers for Climate Action NZ Inc (LCANZI) of a Cabinet decision to ignore advice from the Climate Change Commission to tighten the settings for the Emissions Trading Scheme (ETS).

The High Court in Auckland declared the decisions on the ETS settings for the period 2023 to 2027 were ultra vires s 30GC of the Climate Change Response Act 2002.

Background
In spite of advice from the Climate Change Commission to tighten ETS settings, the government in 2022 chose not to do so. This, along with subsequent government actions, caused carbon prices to drop significantly from nearly $90 to below $40.

At the time, Climate Change Minister James Shaw opposed Cabinet’s decision, but was overruled by his colleagues.

The commission’s advice had three main recommended changes from the current settings to ensure the new settings would accord with the emissions budgets and the net zero 2050 target.

The three main recommendations were to:

1. Significantly increase the auction reserve price based on the commission’s modelling of the minimum price, consistent with achieving the emissions budget;
2. significantly reduce the base auction volume so it aligns with achieving the emissions budget; and
3. significantly increase the cost containment reserve trigger price to meet the original intention that it is only to be triggered rarely.

The ruling
Palmer J said Shaw agreed with the arguments presented by the advocacy group and supported its requested relief.

LCANZI’s argued the ETS settings failed to properly consider the government’s emissions budgets and its commitments under the Paris Agreement to combat global warming. The court ruled Shaw must now re-evaluate the unit limit and price control settings for the years 2023 to 2027 by September 30, to meet the commission’s three recommendations.

LCANZI said the Climate Change Commission had recommended reducing the number of units available for auction to align with emissions budgets and to address a significant stockpile of existing units.

The commission also advocated for a substantial increase in the trigger price to release additional cost containment reserve units. However, Cabinet’s decision allowed an additional 35 million units to be available at low prices over the next five years, equivalent to more than one year’s worth of emissions for sectors within the ETS.

Cabinet’s concerns about higher carbon prices impacting on households led it to make these “incoherent” decisions, LCANZ said. Its president, Bronwyn Carruthers KC, emphasised the importance of ensuring ETS settings were in line with emissions budgets, rather than being driven by political concerns about high ETS prices.

In light of the admission that the decision-making was flawed, and to avoid market instability, the parties sought orders to have the regulations re-worked by September 30, rather than quashing Cabinet’s decisions.

Cabinet is expected to make decisions on unit limits and price controls for 2026 to 2028 based on the commission’s advice and publish the new amendment regulations before September 30.

Held: Application granted.

The minister’s decision, and the resultant Amendment Regulations, were ultra vires s 20GC of the Act because the minister did not have reasonable grounds to be satisfied the combination of Cabinet’s preferred settings were in accordance with the 2050 target and either strictly in accordance with the emissions budgets and the nationally determined contribution (under the Paris Agreement) or in accordance with them with any justified discrepancy specified under s 30GC(5) and (6).

The minister must reconsider the settings for 2023 to 2027 in accordance with the s 30GC(2) and (3) requirements, taking into account the results of consultation done in 2022 and 2023, and in accordance with any other terms of the court’s judgment.

Costs awarded to LCANZI.

Lawyers for Climate Action NZ v Minister of Climate Change [2023] NZHC 1835.